Mortgage Insurance


DEFINITION of 'Mortgage Insurance'

An insurance policy that protects a mortgage lender or title holder in the event that the borrower defaults on payments, dies, or is otherwise unable to meet the contractual obligations of the mortgage. Mortgage insurance can refer to private mortgage insurance (PMI), mortgage life insurance, or mortgage title insurance. What these have in common is an obligation to make the lender or property holder whole in the event of specific cases of loss.

Private mortgage insurance may be called "lender's mortgage insurance" (LMI) if the premium on a PMI policy is paid by the lender and not the borrower. This is typically done in exchange for a higher rate or fee structure on the mortgage itself.

BREAKING DOWN 'Mortgage Insurance'

Mortgage insurance may come with a typical pay-as-you-go" premium payment, or may be capitalized into a lump sum payment at the time the mortgage is originated. For homeowners who are required to have PMI because of the 80% loan-to-value ratio rule, they can request that the insurance policy be canceled once 20% of the principal balance has been paid off.

Mortgage life insurance can be either declining-term (the payout drops as the mortgage balance drops) or level in its payout, although the latter costs more.

  1. Private Mortgage Insurance - PMI

    A policy provided by private mortgage insurers to protect lenders ...
  2. Forced Place Insurance

    The insurance that a lien holder places on a property, to provide ...
  3. Price-to-Rent Ratio

    A mathematical calculation utilized in the Trulia Rent Vs. Buy ...
  4. Constructive Total Loss

    A constructive total loss is an insurance term where the cost ...
  5. Mutual Mortgage Insurance Fund

    A fund that insures mortgages made by the Federal Housing Administration ...
  6. Loan-To-Value Ratio - LTV Ratio

    A lending risk assessment ratio that financial institutions and ...
Related Articles
  1. Insurance

    The 5 Biggest Russian Insurance Companies

    Discover the five companies that dominate the Russian insurance market, and learn a little more about their business operations and ownership.
  2. Insurance

    Insurance Tips For Homeowners

    Use these simple ideas to save money and get better coverage for your house.
  3. Insurance

    15 Insurance Policies You Don't Need

    Learn how to save money by saying "no" to unnecessary coverage.
  4. Home & Auto

    6 Reasons To Avoid Private Mortgage Insurance

    This costly coverage protects your mortgage lender - not you.
  5. Credit & Loans

    Understanding The Mortgage Payment Structure

    We explain the calculation and payment process as well as the amortization schedule of home loans.
  6. Insurance

    Getting Life Insurance in Your 20s Pays Off

    Find out how Americans in their 20s can benefit from a well-thought-out life insurance policy, especially if they are able to build cash value for retirement.
  7. Insurance

    Using LinkedIn to Find Life Insurance Leads

    Learn how LinkedIn can help you generate leads as a life insurance agent, and understand the steps to turn your profile into a lead-generating machine.
  8. Personal Finance

    Choosing An In-Home Safe: Features To Look For

    What to look for in a box to protect your irreplaceable belongings.
  9. Home & Auto

    Top-Tier Home Security Systems: Which Are Best?

    Here's help sorting out the different types of home security systems, which features will work best for you and the costs.
  10. Retirement

    Why Are Annuities Important for Retirement?

    Understand how annuities work, and identify the benefits they provide for retirement, the most salient being a guaranteed income stream for life.
  1. What factors should I consider when shopping for the best mortgage lender?

    Mortgage lenders offer a variety of loan products tailored to specific borrower needs and qualifications. Lenders calculate ... Read Full Answer >>
  2. Can I borrow from my annuity to put a down payment on a house?

    You can borrow from your annuity to put a down payment on a house, but be prepared to pay an assortment of fees and penalties. ... Read Full Answer >>
  3. Are Cafeteria plans exempt from Social Security?

    Typically, qualified benefits offered through cafeteria plans are exempt from Social Security taxes. However, certain types ... Read Full Answer >>
  4. What are the biggest disadvantages of annuities?

    Annuities can sound enticing when pitched by a salesperson who, not coincidentally, makes huge commissions selling them. ... Read Full Answer >>
  5. What are the risks of annuities in a recession?

    Annuities come in several forms, the two most common being fixed annuities and variable annuities. During a recession, variable ... Read Full Answer >>
  6. How can I determine if a longevity annuity is right for me?

    A longevity annuity may be right for an individual if, based on his current health and a family history of longevity, he ... Read Full Answer >>

You May Also Like

Hot Definitions
  1. Real Estate Investment Trust - REIT

    A REIT is a type of security that invests in real estate through property or mortgages and often trades on major exchanges ...
  2. Section 1231 Property

    A tax term relating to depreciable business property that has been held for over a year. Section 1231 property includes buildings, ...
  3. Term Deposit

    A deposit held at a financial institution that has a fixed term, and guarantees return of principal.
  4. Zero-Sum Game

    A situation in which one person’s gain is equivalent to another’s loss, so that the net change in wealth or benefit is zero. ...
  5. Capitalization Rate

    The rate of return on a real estate investment property based on the income that the property is expected to generate.
  6. Gross Profit

    A company's total revenue (equivalent to total sales) minus the cost of goods sold. Gross profit is the profit a company ...
Trading Center
You are using adblocking software

Want access to all of Investopedia? Add us to your “whitelist”
so you'll never miss a feature!